Speaker 1: Bloomberg Audio Studios, podcasts, radio.
Speaker 2: News, dine brands will be taking a closer look at
Speaker 2: the data. The owner of Applebee's and Ihup restaurants reporting
Speaker 2: fourth quarter profit that beat estimates, thanks in part to
Speaker 2: an aggressive promotion strategy. The CEO, John Payton's saying this,
Speaker 2: during the year, we found the guests limited their discretionary
Speaker 2: spend in response to economic pressures, and that this value
Speaker 2: conscious behavior continued in the fourth quarter. While this certainly
Speaker 2: creates challenging and dynamic market conditions, it also allows us
Speaker 2: to leverage our expertise in delivering exceptional value. John paynon month,
Speaker 2: please to say it's with us around a table, JOHNK
Speaker 2: and Mornick, Good morning. I want to kick it off
Speaker 2: with one thing and I mentioned it the commercial break,
Speaker 2: so reaching to continue this conversation. When Walker Hayes put
Speaker 2: together their song just a few years ago, did they
Speaker 2: talk to you about that ahead of time? How did
Speaker 2: that work out?
Speaker 3: So?
Speaker 4: Walker Hayes wrote the Deep Nighted Appleby's song two summers
Speaker 4: ago and it was a gift from above. We did
Speaker 4: not know what was coming. He is an actual Applebee's fan.
Speaker 4: He wrote about date night with his wife at Applebee's
Speaker 4: and he's been an amazing partner to work with. You know,
Speaker 4: we jumped on it. Our marketing team was all over it,
Speaker 4: and so you know that led to the commercial tiktoks.
Speaker 4: He did over one hundred appearances for us. He was
Speaker 4: at our national conference fabulous free marketing.
Speaker 2: How many people are doing date night at applebase now?
Speaker 2: How cost conscious are they?
Speaker 4: Well? Speaking of date night at Applebee's, we just had
Speaker 4: our date night event where we had we had a
Speaker 4: coupon available for two hundred dollars that enabled you to
Speaker 4: eat at Applebee's every week for fifty two weeks with
Speaker 4: a thirty dollars discount, so it was a fifteen hundred
Speaker 4: dollars value for two hundred dollars. We made that available
Speaker 4: at midnight a few weeks ago. It sold out in
Speaker 4: a minute, some some less than a minute. Some commentaries
Speaker 4: said that we broke the internet. Not quite. That we
Speaker 4: added server capacity, we added customer support, and our sites
Speaker 4: might have slowed a little bit, but it was so popular.
Speaker 4: Did it again in Valentine's Day? One thousand date night passes.
Speaker 1: So what are you seeing with respect to where people
Speaker 1: are coming from? Is it the same crowd that's always
Speaker 1: gone to Applebee's that just have more discretionary spending, Or
Speaker 1: do you see people sort of that might have gone
Speaker 1: elsewhere maybe that was more expensive coming to Applebee's or
Speaker 1: going to I Hop for an omelet that's very fluffy.
Speaker 4: A couple of insights at LISA about the consumer We
Speaker 4: get asked that question a lot. Are people trading in
Speaker 4: or out of the category, And from quarter to quarter
Speaker 4: we'll see a few more people come in at a
Speaker 4: higher income level, few more people at a lower income level,
Speaker 4: But over time it's actually fairly consistent. Our core guests
Speaker 4: from a demographic perspective, earns about fifty to seventy five
Speaker 4: thousand dollars a year, and that is literally looks like America.
Speaker 1: Right.
Speaker 4: We've got thirty six hundred restaurants across the country, and
Speaker 4: so our guests are families with children, older couples who've retired,
Speaker 4: who come to ie Hop every day for breakfast. And
Speaker 4: so what we do see from a consumer behavior standpoint
Speaker 4: couple of things. The first is throughout twenty twenty three
Speaker 4: and into twenty twenty four, you know, our guest at
Speaker 4: all three of our brands has been remarkably resilient to
Speaker 4: the extent that it really surprised us a bit. We
Speaker 4: do see from our data that they're eating out one
Speaker 4: or two times fewer per quarter than they did before.
Speaker 4: And when they make their choices, they are still looking
Speaker 4: for full service dining because prices are up almost twenty
Speaker 4: percent in restaurants versus twenty nineteen. And so if you're
Speaker 4: going out to eat and QSR has become more expensive
Speaker 4: as well, they want that experience, they want the service,
Speaker 4: They want everything that we have to offer at Applebee's
Speaker 4: and I Hopit and Fuzzies. Once they find us their
Speaker 4: very value focused and so you know, the percentage of
Speaker 4: our tickets that are taking advantage of our ltos, our
Speaker 4: limited time offers, and our value portion of our menus
Speaker 4: are up a few ticks from where it was before.
Speaker 1: So, then how do you maintain margins at a time
Speaker 1: where we keep talking about the fact that people are
Speaker 1: demanding higher pay. There's a whole question about worker retention,
Speaker 1: there's a whole question about to see input prices of
Speaker 1: a lot of foods and how they have remained sticky.
Speaker 1: How do you manage that?
Speaker 4: Yeah, so margins are the biggest challenge in the industry
Speaker 4: right now, particularly for our owners. We're one hundred percent
Speaker 4: franchise right so the impact of labor costs, the impact
Speaker 4: of cost of goods into the restaurants affects our franchisees directly,
Speaker 4: and so we focus on two things. We're doing everything
Speaker 4: we can to drive the top line right through really
Speaker 4: creative promotions and value offerings, and we work with them
Speaker 4: on re engineering as best we can the bottom line.
Speaker 4: So last year, for example, working with our franchise Ease,
Speaker 4: we took out fifty million dollars in cost across the system.
Speaker 4: And we focus on things that are sustainable and repeatable,
Speaker 4: so technology, process improvement.
Speaker 1: You know.
Speaker 4: One example is we're putting in automated beer dispensers, which
Speaker 4: saves you know, hundreds of thousands of gallons of beer
Speaker 4: a year by having more accurate coores, less and less waste.
Speaker 4: And so that's the way we're trying to automate things
Speaker 4: like that and help them manage their costs.
Speaker 3: Yesterday, Wendy's had received a ton of blowback when they
Speaker 3: came out and they're going to do dynamic price seeing
Speaker 3: they said, no, no, no, we're not going to raise prices
Speaker 3: on busy hours, but maybe we'll offer some discounts online.
Speaker 3: Could you ever see yourself doing that sort of mixed
Speaker 3: prices thing depending on peak and off peak hours.
Speaker 1: Yeah.
Speaker 4: So I come from the hotel industry, right, and I
Speaker 4: led revenue management when I was at Starward Hotels for
Speaker 4: a long time. And as you know with airlines, with hotels,
Speaker 4: no two people pay the same price for the same
Speaker 4: hotel room or the same ticket, depending on what channel
Speaker 4: they purchased it on, when they purchased it, if their
Speaker 4: loyalty status. You know, we've looked at it for restaurants,
Speaker 4: but we don't think it applies to us or our customers.
Speaker 1: At this time.
Speaker 2: We're hearing the words price scouching a lot down in Washington,
Speaker 2: d C. Can you talk to us about what you
Speaker 2: think about that. How difficult is it to bring prices
Speaker 2: back down to where they were a few years ago.
Speaker 4: It's difficult to bring prices back down when labor costs
Speaker 4: are escalated, and labor is pretty sticky, right, it tends
Speaker 4: not to come back down. The cost of goods and
Speaker 4: primarily food into the restaurants has stabilized, and we're even
Speaker 4: predicting some deflation in the cost of goods into the restaurants.
Speaker 4: Be's in twenty twenty four about flat to maybe plus
Speaker 4: one for IHOP When you translate that to pricing, and
Speaker 4: it's our franchisees who make the pricing decisions because they
Speaker 4: own the restaurants typically, you know, pre twenty nineteen. Everything
Speaker 4: is pre twenty nineteen, right these days, our franchisees raise
Speaker 4: prices about two to three percent a year. The last
Speaker 4: couple of years, it's been more in the five to eight,
Speaker 4: nine or nine percent. What we're seeing now with the
Speaker 4: stabilizing of both labor and cost of goods, we think
Speaker 4: they're back on a path to that two to three
Speaker 4: percent over the next couple of years.
Speaker 1: I want to talk about the automatic bear dispenser, not
Speaker 1: because I'm actually interested in the automatic beer dispenser, but
Speaker 1: it sort of highlights the amount and we talk about,
Speaker 1: you know, just you get a little bit less, and
Speaker 1: that's one way to manage a little bit less.
Speaker 4: It's an accurate pool.
Speaker 1: Okay, understandablabor, then you could just make it an accurate
Speaker 1: pore of a little bit less. I mean, how much
Speaker 1: is that something that's going on around the margins?
Speaker 4: So never ever, so our definition of value is is
Speaker 4: great eat food at a really accessible price, an abundant portion,
Speaker 4: right and the experience you have in the restaurant. And
Speaker 4: Applebe's and I Hop and now Fuzzies. But Applebe's and
Speaker 4: i Have in particular have been around for fifty and
Speaker 4: sixty five years, and you know, they've cemented their reputation
Speaker 4: in consumers' minds as the value oriented brand in both
Speaker 4: their categories. And you know, I'm a former chief marketing officer,
Speaker 4: and you know what I've been taught about brands is
Speaker 4: that you people go to brands they know and they trust,
Speaker 4: and you can trust that Apple Be's and ihop are
Speaker 4: always going to have an abundant portion. And that's that's
Speaker 4: sacred for us.
Speaker 2: A pint should be a pint. I'm talking English mashes,
Speaker 2: of course, but a pint should be a pint. B
Speaker 2: noice string flash.
Speaker 4: I just want to say, but warm, the pint is
Speaker 4: always warm, which I haven't understood.
Speaker 2: It's a different kind of pint against that another time.
Speaker 1: To say, in Europe they actually have lines and all
Speaker 1: the wine glasses to have accurate pores, so it's.
Speaker 2: Something that they should have an accurate pull. I've saved
Speaker 2: this to the end of the conversation, because I don't
Speaker 2: know to upset you too much, but this is going
Speaker 2: to sound terribly right, So I forgive me for the
Speaker 2: frame of this question. I'm just blunt British. Call me
Speaker 2: whatever you want. How dependent are you want for twenty
Speaker 2: percent of this country? Rumenicabase? What happens if a zempic
Speaker 2: actually does something abouts it? What happens to you? What
Speaker 2: happens to this organization?
Speaker 4: So the most the response to that is that our
Speaker 4: menu has something for everyone, right And if you went
Speaker 4: to ihop years ago, it didn't have protein based, plant
Speaker 4: based proteins, you know, it didn't have a series of
Speaker 4: egg white omelets, it didn't have gluten free pancakes, you know,
Speaker 4: And the same is true. The same is true at
Speaker 4: applebe So you know, what's important for us is that
Speaker 4: no matter what the dietary orientation is of someone in
Speaker 4: that family, that we have something for everybody.
Speaker 1: So right now, are you factoring in any kind of
Speaker 1: shift from that type of change given the fact that
Speaker 1: there is a pretty rapid adoption for these weight loss.
Speaker 4: Medications, we haven't seen yet any material impact on our business,
Speaker 4: and we're not factoring it in terms of our predictions
Speaker 4: about traffic and comp sales, which really our focus is
Speaker 4: on the menu and ensuring that whether you're at any
Speaker 4: one of the three brands, there really isn't something for
Speaker 4: anyone depending on how they eat and how they choose
Speaker 4: to eat.
Speaker 3: Because of this craze, almost do you feel like you're
Speaker 3: pushed more into being well healthier on your menu?
Speaker 4: That push preceded ozebic, right, So the way Americans eat,
Speaker 4: you know, has been journeying slowly right toward more healthy
Speaker 4: eating over time. So portions changed, Our portions have always
Speaker 4: been the same. It's more about what we're offering and
Speaker 4: having broader menu.
Speaker 1: Can I just ask one more question about the technology investments.
Speaker 1: I'm just wondering, do you think that we will always
Speaker 1: have service in the form of a human I do.
Speaker 4: I use the phrase that we are not a technology
Speaker 4: company that happens to serve food. We're a food company
Speaker 4: that embraces technology. And so, for example, at IHOP, we've
Speaker 4: just rolled out a new POS across the whole system.
Speaker 4: We've got fifteen fifty restaurants to go, and with it
Speaker 4: came handhelds for all of our servers, and so our
Speaker 4: servers love it because they're turning tables faster. They're making
Speaker 4: more tips. Our franchisees love it because we're turning tables faster,
Speaker 4: and we're also raising the average check because servers are
Speaker 4: attaching beverages more often. Sometimes you forget to put that
Speaker 4: soda on the tip when you're on the check, when
Speaker 4: you're really busy. So it's it's technology like that that
Speaker 4: we're using to enable the experience. We're also allowing guests
Speaker 4: via our app if they want to order in advance
Speaker 4: and then seat themselves at the table, then they can
Speaker 4: do that. But it's more about how they want to
Speaker 4: interact with us and giving them all those options.
Speaker 2: John, this was great. I promise never ever to share
Speaker 2: the secret ingredient in the omelet.
Speaker 4: Okay, I have no idea what you're talking about.
Speaker 2: John, Thank you. Jump paid on the time friends, John,
Speaker 2: thank you very much. This is great. Appreciate it.